Dean Baker: The Nonsense About a Demographic Crisis

If annual productivity growth is closer to 1.5 percent, roughly the rate that we have been seeing for the last 17 years, then the gains in living standards will be 40.8 percent, more than five times the size of the negative impact from demographics. And if productivity growth were to rebound to 2.0 percent annually (still somewhat less than the 1947-73 golden era rate) the cumulative increase in living standards would be 57.7 percent, a bit less than eight times as large as the impact of demographics in lowering living standards. (Note that these measures of productivity are adjusted to calculate the portion of growth that actually translates into potential gains for workers. For this reason, they are very conservative.)

In short, under any plausible scenario the potential gains to living standards from increased productivity swamp any potential negative impact from a declining ratio of workers to retirees. And these calculations do not even take account of unmeasured benefits of slower population growth, like less pollution and reduced strains on the infrastructure. It is also important to remember that these numbers show the absolute largest impact of demographics. If we were look out another 10 years to 2045, the demographics would not change, while productivity would continue to raise living standards.

In short, the idea that demographics will impoverish our children and grandchildren is absurd on its face. Readers may rightly note than most workers have not see the gains of productivity growth over the last three decades, but this just highlights the importance of intra-generational distribution. The impact of battles over distribution of income within generations will dwarf the impact of battles over distribution between generation.

When people being portrayed as policy experts tell you that the United States or other countries face a demographic disaster because of declining ratios of workers to retirees they are mostly trying to tell you that they are not very good arithmetic.

1. There's also the assumption that there are no

costs to steady population growth.

I am of the firm opinion that there are far too many people on this planet already, and that a truly sustainable number is probably about 1 billion people. Eventually, there will be some kind of a population crash, although I'm not about to attempt predicting how or when that might happen.

I recently read an excellent book about the Bubonic Plague epidemic of the 14th century, The Great Mortality and it talks a lot about how at the outset, the population of Rome was only a fraction of what it had been at its height, and how many cities all over Europe took hundreds of years to regain population. And (this is important) the standard of living for the survivors improved. There was now a shortage of workers and those workers could demand higher wages. It also spurred technological innovation, because now there was a real need to invent machines to do what the missing workers used to do. Industrial Revolution, anyone?